The Caldwell Partners International Inc.
Annual Report 2013
Premier
providers
of
executive
search
Dear Shareholders, Clients, and Friends:
Fiscal 2013 turned out to be a year of polarized results. What began as a slow first
half of the year in a challenging business climate swung dramatically positive over
the course of the second half.
As a result of our strong back half, we ended the year with $33.8 million in annual
revenue, up 3% over 2012. In our fourth quarter, our revenue was $10.3 million, up
17% from a year ago. We generated $0.9 million net operating profit in the fourth
quarter, reducing our 2013 net operating loss to $0.1 million compared to a net
operating profit of $1.0 million last year. Included in the 2013 results are $0.4
million in severance costs incurred in the third quarter and a deferral of $0.8 million
in operating profit (on $1.4 million of deferred revenue) related to a change in our
estimation methodology for deferred revenue that was implemented in the fourth
quarter.
Unencumbered cash remained roughly the same as we started the year, over and
above the payment of more than $1.0 million in dividends to our shareholders. We
are feeling positive about both our momentum and our financial position moving
into fiscal 2014.
As important are the intangibles that are the drivers and precursors of sustainable
financial results: superior client service, exceptional client satisfaction, the caliber of
people we attract and the respect with which we treat them. There is a strong
correlation for us amongst the preeminence of our partners, the quality of our work,
the level of client satisfaction and the subsequent value we are able to deliver to our
shareholders.
The economic climate will continue to wax and wane; markets will go up and down.
In the end, though, success doesn’t hinge on the economy - it comes down to people.
Shareholders Letter
1
Caldwell Partners –
We are intent on attracting the most talented people in the industry and providing
them with an environment that is more than just a place to work but is, rather, a
company about which they are truly excited, feel responsible for and want to be with
for the long term.
And we are working on just that. We made a number of outstanding new partner and
staff hires this year - each of whom has brought a palpable and contagious new
energy to the firm. We are attracting great partners, because they’re joining great
partners, and we will continue to make targeted, strategic additions to the team.
We are also squarely focused on quality and satisfaction, and have taken concerted
steps to strengthen both our search process and the dialogue that we have with our
clients about what they truly value from us as their chosen search firm. It takes great
time and energy to get a client, but it takes even more focus and discipline to keep a
client.
We are working to build a company that is exceptional, and while it is a challenge
that rests with us, it is one that is well within our grasp.
As always, we thank each and every member of the Caldwell Partners team for the
solid financial results that we collectively achieved over the course of the past fiscal
year. There is great energy and momentum within the firm, and we look forward to
the year ahead!
Yours sincerely,
G. Edmund King
John N. Wallace
and logos are copyrights of their respective owners.
Chair of the Board
President & Chief Executive Officer
Shareholders Letter
2
Caldwell Partners –
(Expressed in $000s Canadian, except per share amounts)
For the Years Ended August 31, 2013 and 2012
Management
Discussion and Analysis
Company description
The Caldwell Partners International Inc. (“The Caldwell Partners” or “the Company”)
is one of North America’s premier providers of executive search and has been for over
40 years. As one of the region’s most trusted advisors in executive search, the
Company has a sterling reputation built on successful searches for boards, chief and
senior executives, and selected functional experts.
With offices in Vancouver, San Francisco, Los Angeles, Dallas, Calgary, Atlanta,
Toronto, Stamford, New York City, and a strategic presence in London and Hong Kong,
the Company takes pride in delivering unmatched level of service and expertise to its
clients.
The Caldwell Partners’ common shares are listed on the Toronto Stock Exchange
(TSX: CWL). Please visit our website at www.caldwellpartners.com for further
information.
Management Discussion and Analysis
3
Caldwell Partners –
Forward-Looking Statements
Forward-looking statements in this document are based on current expectations that
are subject to the significant risks and uncertainties cited herein. The Caldwell
Partners assumes no obligation to update the forward-looking statements, or to
update the reasons why actual results could differ from those reflected in the
forward-looking statements. The Company is subject to many risks identified in the
“Risk Factors” section of the Company’s Annual Information Form and other public
filings (copies of which may be obtained at www.sedar.com). Should one or more of
these risks or uncertainties materialize, or should assumptions underlying the
forward-looking statements prove incorrect, actual results, performance or
achievements may vary materially from those expressed or implied by this MD&A.
These factors should be considered carefully and the reader should not place undue
reliance on the forward-looking statements. Although any forward-looking
statements contained in this report are based upon what management currently
believes to be reasonable assumptions, the Company cannot assure readers that
actual results, performance or achievements will be consistent with these forward-
looking statements, and management’s assumptions may prove to be incorrect. These
forward-looking statements are made as of the date of this MD&A.
Presentation
The following discussion and analysis, prepared on November 8, 2013, should be read
in conjunction with the consolidated annual financial statements and related notes for
the year ended August 31, 2013. All currency amounts are provided in Canadian
dollars unless otherwise noted. All references to quarters or years are for the fiscal
periods unless otherwise noted. All numbers (except percentages and per share
amounts) are expressed in thousands unless otherwise noted.
Management Discussion and Analysis
4
Caldwell Partners –
Operating Revenue
Operating Results
2013
2012
Q1
Q2
Q3
Revenue
$7,417
$6,825 $9,223
Period end number of partners
33
34
35
Average number of partners
33.3
33.5
35.0
Annualized revenue per partner
$891
$815
$1,054
Revenue
$7,270
$7,221 $9,357
Period end number of partners
33
34
34
Average number of partners
32.0
33.3
34.5
Annualized revenue per partner
$909
$867
$1,085
Q4
Annual
$10,338 $33,803
33
34.0
33
33.9
$1,216
$997
$8,856 $32,704
34
34.0
33
33.4
$1,042
$979
2013 fourth quarter revenue increased by 17% over the comparable period last year
to $10,338 (2012: $8,856), reflecting billing increases of 34%, offset by increased
deferred revenue of $1,358. 2013 annual revenue increased 3% over fiscal 2012 to
$33,803 (2012: $32,704), reflecting billing increases of 8%, offset by increased
deferred revenue of $1,358 from the fourth quarter.
Revenue results for the 2013 fourth quarter and full year were impacted by a change
in the estimation of deferred revenue, based on the ability to access enhanced search
performance metrics (as described in Note 11 to the Financial Statements). In the
fourth quarter, this resulted in the deferral (reduction) of revenue of $1,358 (2012:
$0). This change in methodology has been applied prospectively, and as such, creates
a change in the timing of revenue recognition during the fourth quarter, and does not
impact cash flow or cash balances.
The revenue increases for both the quarter and full year compared to the same
periods in the prior year are attributable to increased revenue in the US and Canadian
businesses. Revenue in the US for the quarter was up 20%, reflecting billing increases
of 34% from higher search volumes, offset by increased deferred revenue of $769 as a
result of the Company's changes in estimating for percentage of completion on
searches in progress. For the year, US revenue was down 1%, reflecting billing
increases of 2% on consistent search volumes with higher average fees, offset by the
increased deferred revenue of $769. Fourth quarter revenue in Canada was up 10%,
reflecting billing increases of 29% on increased search volumes and higher average
Management Discussion and Analysis
5
Caldwell Partners –
fees, offset by increased deferred revenue of $589. Full year revenue in Canada was
up 13%, reflecting billing increases of 19% again on higher search volumes and
higher average fees, offset by increased deferred revenue of $589. US revenues
represent 66% of consolidated revenues in 2013 versus 69% a year ago driven by
Canada’s increased productivity and resultant revenue proportion.
Sequentially, fourth quarter 2013 revenue was up $1,115 over third quarter 2013,
reflecting billing increases of 27%, and offset by increased deferred revenue of
$1,358. The sequential revenue increase was driven by increasing average revenue
per partner (calculated based on the revenue for the period divided by the average
number of partners for the period), the result of higher search volumes in both the US
and Canadian businesses.
Cost of Sales
2013
2012
Q1
Q2
Q3
$5,620
$5,912
$5,595
$5,675
$7,183
$6,759
Q4
$7,607
$6,236
Annual
$26,005
$24,582
Cost of sales, being both variable and fixed compensation and related costs of
employees involved in search activities, were up 22% to $7,607 in the 2013 fourth
quarter over the comparable period a year earlier (2012: $6,236), increasing
primarily from the revenue increase of 17% for the same period. Also causing higher
cost of sales were personnel additions to accommodate recent partner hires,
increases in payroll taxes and healthcare costs and higher average commission tiers
for Canadian partners on higher average billings. These increases were partially offset
by lower average commission tiers for United States partners and a year over year
reduction in compensation expense for the reversal of commissions accrued when
receivables were not ultimately collected. As a result, fourth quarter cost of sales
represented 74% of operating revenue in 2013 versus 70% in 2012.
For the full year 2013, cost of sales increased by 6% over the prior year to $26,005
from $24,582, reflecting the compensation impact of revenue increasing by 3% for
the period, higher commission rates on increased per partner performance in Canada
and increases in search delivery personnel during 2013. Additionally, the Company’s
CEO of the Year event incurred additional costs during 2013 compared to 2012. As a
result, 2013 year-to-date direct costs represented 77% of operating revenue versus
75% of revenue in 2012.
Management Discussion and Analysis
6
Caldwell Partners –
To the extent revenue is deferred for recognition in a future period, the Company also
defers the related amount of estimated compensation expense directly associated
with such deferred revenue. Reflected in the 2013 fourth quarter and full year is a
deferral of compensation expense of $586 (2012: $0).
Gross Profit and Margin
2013
2012
Q1
Q2
Q3
$1,797
$1,230
$2,040
24%
18%
22%
$1,358
$1,546
$2,597
19%
21%
28%
Q4
$2,731
26%
Annual
$7,798
23%
$2,621
$8,122
30%
25%
Gross profit in the fourth quarter of 2013 increased to $2,731 or 26% of revenue
versus fourth quarter in the previous year (2012: $2,621 or 30% of revenue); the
result of the 17% increase in revenue offset by the 22% increase in cost of sales.
Reflected in the 2013 fourth quarter is the deferral of gross profit of $772 (2012: $0),
the net impact of the change in estimate for deferred revenue, less related deferred
compensation expense.
Sequentially, fourth quarter margins have increased to 26% from 22% in the third
quarter. Factors affecting the increased margin this quarter over the previous include
a 12% increase in revenue quarter to quarter with a 6% increase in Cost of Sales as
portions of cost of sales are fixed costs.
On a year-to-date basis, 2013 gross profit decreased to $7,798, from $8,122 in 2012.
Reflected in the 2013 full year is the fourth quarter deferral of gross profit of $772
(2012: $0), the net result of the deferred revenue less related deferred compensation
expense. The decrease was also driven by the revenue increase of 3% on better
performance in Canada and the US, offset by the cost of sales increase of 6% from the
increased compensation costs on higher revenue, increases in search delivery
personnel costs and higher CEO of the Year event costs. As a result, gross margin for
2013 was 23% (2012: 25%).
Management Discussion and Analysis
7
Caldwell Partners –
Expenses
2013
2012
Q1
Q2
Q3
$1,850
$1,758
$1,889
$1,792
$2,406
$1,888
Q4
$1,785
$1,673
Annual
$7,930
$7,111
Fourth quarter 2013 expenses increased 7% or $112 over the same period prior year
to $1,785 (2012: $1,673). The drivers of the increased costs include higher spending
on marketing and business development, higher occupancy costs from our Stamford,
Connecticut office move and a benefit in the prior year from legal reserve reversals,
offset by foreign exchange gains during the current year.
Full year 2013 expenses increased $819 over the same period prior year to $7,930
(2012: $7,111). The increase was largely due to a severance expense incurred during
the third quarter of 2013 of $446 for an employee in Canada. The severance is being
paid out monthly in equal cash installments to the end of May 2015. Under certain
circumstances for the former employee, the Company may recoup a portion of the
settlement. Excluding the severance expense, 2013 expenses increased 5% over the
prior year to $7,484 (2012: $7,111). Contributors to the increase include higher
accruals for the management long-term incentive plan based on an increase in share
price, increased occupancy costs resulting from our Stamford, CT office move, invest-
ment in communication infrastructure and higher business development activity.
Operating Profit (Loss)
2013
2012
Q1
Q2
Q3
($52)
-1%
($401)
-6%
($659)
-10%
($246)
-3%
($367)
-4%
$710
8%
Q4
$946
9%
$948
11%
Annual
($132)
0%
$1,011
3%
For the 2013 fourth quarter, higher year-over-year revenues ($1,482) offset by higher
cost of sales ($1,371) and expenses ($112) resulted in a decrease in operating profit
of $2. Reflected in the 2013 fourth quarter is the deferral of gross profit of $772
(2012: $0), the net impact of the change in estimate for deferred revenue, less related
deferred compensation expense.
Management Discussion and Analysis
8
Caldwell Partners –
The full year 2013 operating loss was $132 (including $446 of severance costs
expensed during the third quarter and the $772 gross profit deferral discussed
above). This represents a $1,143 decline over the prior year’s operating profit. Higher
year-over-year revenue ($1,099) was offset by higher cost of sales ($1,423), and
increased expenses ($819, of which $446 was severance expense and $373 were
increased costs across other general and administrative areas).
Investment Income
2013
2012
Q1
$2
$2
Q2
$7
$7
Q3
$2
$1
Q4
$2
$5
Annual
$13
$15
The Company manages market risk by using a third party investment manager to
follow the specific investment criteria established and approved by the Board of
Directors and designed to reduce exposure to market risk. As of August 31, 2013, the
entire investment portfolio is placed with a third party investment manager and held
in two pooled funds.
For the fourth quarter of 2013, the Company reported investment income of $2
compared to $5 from the comparable period last year. For the full year 2013, the
Company reported investment income of $13 compared to $15 from 2012. The
income amounts are the result of interest income on the investments.
At August 31, 2013, the market value of investments held by the Company of $3,577
(2012: $3,303) was $681 above book value, and reflecting an increase in value of
$274 during the year. This unrealized gain has been reflected in both other
comprehensive income and in the stated value of the investment portfolio.
Earnings (Loss) Before Tax
Net Earnings (Loss)
2013
2012
Q1
Q2
Q3
($50)
($399)
($652)
($239)
($365)
$711
Q4
$948
$953
Annual
($119)
$1,026
For the fourth quarter of 2013, the revenue increase, coupled with higher cost of sales
and expenses noted in the above discussion resulted in a net earnings before income
Management Discussion and Analysis
9
Caldwell Partners –
taxes of $948 compared to net earnings before income taxes of $953 a year ago.
Reflected in the 2013 fourth quarter is the deferral of gross profit of $772 (2012: $0),
the net impact of the change in estimate for deferred revenue, less related deferred
compensation expense.
The full year 2013 net loss before tax was $119 in 2013 (including $446 of severance
costs expensed during the third quarter and the $772 gross profit deferral discussed
above) compared to $1,026 of net earnings before tax in 2012.
Tax expense in 2013 of $163 (2012: $45) arose primarily as the result of writing off
certain tax receivables and derecognizing certain deferred tax assets recorded in the
prior year based on a change in management’s estimate to recoup such amounts. The
Company has Canadian loss carry forwards available to be applied against taxable
income as it arises in future periods. As of August 31, 2013 no benefit for such future
potential deferred tax recoveries has been recorded. As the company does not
currently recognize tax assets on operating losses, no tax benefit was recorded for the
impact of the change in estimate for deferred revenue.
Net Earnings (Loss)
2013
2012
2013
2012
Q1
Q2
Q3
($56)
($445)
($653)
Earnings (Loss) Per Share
($241)
($366)
$711
($0.003)
($0.038)
($0.021)
($0.025)
($0.014)
$0.040
Q4
$793
$956
Annual
($282)
$981
$0.045
$0.056
($0.017)
$0.057
The fourth quarter net earnings were $793 ($0.045 per share) in 2013, as compared
to $956 of net earnings ($0.056 per share) in the comparable period a year earlier.
The year-to-date net loss after tax was $282 (-$0.017 per share) in 2013, versus net
earnings of $981 ($0.057 per share) in 2012.
As previously discussed, reflected in the 2013 fourth quarter is the deferral of gross
profit of $772 (2012: $0), the net impact of the change in estimate for deferred
revenue, less related deferred compensation expense, which has reduced net earnings
and earnings per share by $772 and $0.045 respectively.
Management Discussion and Analysis
10
Caldwell Partners –
Dividends
Since shareholders approved a restatement of capital on May 1, 2012 that allowed the
Company to reinstate the payment of quarterly dividends, total dividends declared
through August 31, 2013 are 9.0 cents per share or $1,534 in total, as reflected in the
following chart:
Declaration Date
Payment Date
Dividend
per Share
Aggregate
Amount
May 1, 2012
July 23, 2012
June 15, 2012
September 14, 2012
November 15, 2012
December 14, 2012
January 11, 2013
March 15, 2013
April 11, 2013
July 11, 2013
June 14, 2013
September 13, 2013
$0.015
$0.015
$0.015
$0.015
$0.015
$0.015
$255
$255
$255
$255
$255
$255
On November 8, 2013 the Board of Directors declared a dividend of 1.75 cents per
share, payable to holders of Common Shares of record on November 25, 2012 and to
be paid on December 13, 2013.
Liquidity and Capital Resources
As of August 31, 2013, the Company had $3,577 of marketable securities plus cash
and cash equivalents of $7,868, for a total cash and marketable securities balance of
$11,445, up $1,395 from $10,050 at year-end 2012. The increase is due to 2013
operating income and resultant cash flows from operations less dividend payments to
shareholders, capital expenditures and net increases from other changes including
foreign currency fluctuations and partner sign-on bonuses.
Unencumbered cash, a non-GAAP measure, that we define as the net of cash and cash
equivalents, restricted cash, marketable securities, current accounts receivable and
total liabilities excluding deferred revenue and deferred compensation expense
related to deferred revenue total approximately $6,797 at August 31, 2013, down
from $7,050 at the end of fiscal 2012. The decline is the result of the cash flow from
operations, offset by sign-on payments to certain new partner hires, dividend
payments issued during the fiscal 2013, capital expenditures and exchange rate
fluctuations.
Management Discussion and Analysis
11
Caldwell Partners –
Accounts receivable were $7,089 at August 31, 2013, up $966 from $6,123 at the end
of fiscal 2012. Days outstanding based on quarterly revenue were 56 days at August
31, 2013 versus 62 days at August 31, 2012. At August 31, 2013, a reserve of $352 or
approximately 34% of accounts over 90 days old has been taken.
Total liabilities were $12,509 at August 31, 2013, up $3,386 from $9,123 at the end of
2012 reflecting an increase in commissions and bonuses payable on the increased
revenue in 2013 compared to 2012, the deferral of revenue in 2013 net of the related
reduction in compensation expense related to the deferred revenue and the
severance costs accrued during 2013 but not yet paid.
The Company’s investment in property and equipment at August 31, 2013 was $1,361
compared with $1,504 at the end of 2012. This reflects additions of $221 and
depreciation expense of $400, net of exchange rate fluctuations over the period of
$36. Capital expenditures included computer hardware and software as well as office
furniture and equipment.
Shareholders’ equity at August 31, 2013 was $10,226, down $781 from $11,007 at the
end of 2012. This decrease reflects the year-to-date net loss of $282, dividend
payments of $1,024, an unrealized gain on marketable securities of $274, translation
gains on consolidation of $185, an employee stock option share issuance of $49, and
share-based payment expense of $17.
The Board of Directors believes that the payment of regular dividends is in the best
interests of the Company and all shareholders. Subsequent to shareholder approval of
the restatement of capital on May 1, 2012, the Company has now declared six
quarterly dividends through August 31, 2013, each of 1.5 cents per common share. On
November 8, 2013 the Board of Directors declared a dividend of 1.75 cents per share,
payable to holders of Common Shares of record on November 25, 2012 and to be paid
on December 13, 2013.
Business Outlook
The Company observed improved market conditions during the back half of fiscal
2013, although our business historically has generally performed better in the third
and fourth quarters compared to the first and second quarters of a given fiscal year.
We remain focused on our North American growth opportunities through enhanced
business development and marketing initiatives and select hires of high caliber
search professionals. We believe there is still a large opportunity to grow the
Management Discussion and Analysis
12
Caldwell Partners –
Company organically, as we continue to build our practice and functional offerings
across geographies in United States and Canada. We will also continue to focus on the
higher end of the search market, where high touch search is seen as an important
business investment, rather than an expense. This work allows us to deliver the most
value and return to our clients, as well as our shareholders, as it brings higher search
fees.
Related Party Transactions
Pursuant to its lease agreements, the Company paid rent for its Toronto office to an
affiliated company owned by a shareholder, C. Douglas Caldwell, registered as owning
more than ten percent of the Company. The amount of consideration agreed to by the
parties was determined to be fair market rental rates at the inception of the lease by
an independent commercial real estate counselor and was approved by the
independent members of the Board of Directors. Occupancy costs within general and
administrative expenses in the consolidated interim statements of earnings (loss)
have been recognized for year ended August 31, 2013 in the amount of $200,343
(2012: $200,343).
Critical Accounting Estimates & Judgments
The Company makes estimates and assumptions concerning the future that will, by
definition, seldom equal actual results. The following are the estimates and judgments
applied by management that most significantly affect the Company's financial
statements. These estimates and judgments have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next
financial year. The following discussion sets forth management’s most significant
estimates and assumptions in determining the value of assets and liabilities, and the
Revenue recognition
most significant judgments in applying accounting policies.
The Company’s method of revenue recognition requires it to estimate the expected
average performance period and the percentage of completion, based on the
proportion of the estimated effort to fulfill the Company’s obligations throughout the
expected average performance period for its executive searches. Differences between
the estimated percentage of completion and the amounts billed will give rise to a
deferral of revenue to a future period. Changes in the average performance period or
Management Discussion and Analysis
13
Caldwell Partners –
the proportion of effort expended throughout the performance period for its
executive searches could lead to an under or overvaluation of revenue. Further
Allowance for doubtful accounts
information on deferred revenue is included in note 11 to the Financial Statements.
Estimates are used in determining the allowance for doubtful accounts related to
trade receivables. The estimates are based on management’s best assessment of the
collectability of the related receivable balance based, in part, on the age of the specific
receivable balance. An allowance is established when the likelihood of collecting the
account has significantly diminished. Future collections of receivables that differ from
management’s current estimates would affect the results of operation in future
Impairment of Goodwill
periods.
The Company tests at least annually whether goodwill is subject to any impairment.
Various assumptions are made in performing this test, including estimates of future
revenue streams, operating costs and discount rates. Future results that differ from
management’s current estimates would affect the results of operation in future
periods.
Risks and Uncertainties
The Company operates in a highly competitive industry and its results may be
affected by a number of factors. These factors include, but are not limited to,
competition from other companies directly or indirectly engaged in executive search;
the ability of the Company to execute its growth strategies; the performance of the
Canadian domestic and international economies; the Company’s ability to attract and
retain key personnel; and the Company’s ability to invest retained earnings in
marketable securities and in short-term money market instruments to generate
consistent investment income returns. Investments in marketable securities are
inherently subject to market risk, which the Company endeavours to manage through
a conservative investment policy that adheres to specific criteria set and reviewed by
its Board of Directors. The Company is invested in pooled funds designed to
adequately diversify its investments to reduce investment risk. Currently,
professional investment managers invest and manage the entire $3,577 investment
portfolio in accordance with the Company’s investment policies. As of August 31,
2013, marketable securities, cash and cash equivalents and restricted cash total
Management Discussion and Analysis
14
Caldwell Partners –
approximately $11,445. With the volatility of capital markets, returns on the
Company’s investment portfolio may diminish.
As the Company’s operations in the United States continue to expand, foreign
exchange risk will also increase. At August 31, 2013, the Company held two forward
contracts to sell US dollars totalling $1,000 USD each, one expiring on September 3,
2013 and the other on September 10, 2013.
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining the Company’s disclosure controls and procedures. The
Chief Executive Officer and Chief Financial Officer, in conjunction with the Board of
Directors, review any material information affecting the Company to evaluate and
determine the appropriateness and timing of public release.
The Chief Executive Officer and the Chief Financial Officer, after evaluating the
effectiveness of the Company’s disclosure procedures as of August 31, 2013, have
concluded that the Company’s disclosure controls and procedures are adequate and
effective to ensure that material information relating to the Company and its
subsidiaries would have been known to them.
Internal Control Over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal
controls over financial reporting. Internal controls over financial reporting are
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with IFRS.
In designing and evaluating such controls, it should be recognized that due to
inherent limitations, any controls, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives and
may not prevent or detect misstatements. Projections of any evaluations of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Additionally, management is required to
use judgement in evaluating controls and procedures.
Management Discussion and Analysis
15
Caldwell Partners –
Management has used the criteria established in Internal Control - Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) to design and assess the effectiveness of internal
controls over financial reporting. Based on this assessment the Chief Executive Officer
and the Chief Financial Officer concluded that the design and operation of these
internal controls over financial reporting for the Company are effective to provide
reasonable assurance regarding the reliability of financial reporting, and the
preparation of financial statements for external purpose in accordance with IFRS as of
August 31, 2013.
Management has also evaluated whether there were changes in the Company’s
internal controls over financial reporting during the reporting period ended August
31, 2013 that materially affected, or are reasonably likely to affect, the Company’s
internal controls over financial reporting. Management has determined that no
changes occurred during the quarter ended August 31, 2013 which would have a
material impact.
Other Information
Additional information relating to the Company, including the Company’s Annual
Information Form, is available on SEDAR at
www.sedar.com
Management Discussion and Analysis
16
Caldwell Partners –
Consolidated
Financial Statements
For the Years Ended August 31, 2013 and 2012
Consolidated Financial Statements
17
Caldwell Partners –
Management’s Report to Shareholders
The consolidated financial statements and all information contained in this annual
report are the responsibility of management and the Board of Directors of The
Caldwell Partners International Inc. (“the Company”). The financial statements have
been prepared by management in accordance with accounting principles generally
accepted in Canada and, where appropriate, reflect management’s best estimates and
judgments based on currently available information. The Company has established
accounting and reporting systems supported by internal controls designed to
safeguard assets from loss or unauthorized use and ensure the accuracy of the
financial records. The financial information presented throughout this annual report
is consistent with the consolidated financial statements.
PricewaterhouseCoopers LLP, an independent firm of chartered accountants, has been
appointed by the shareholders as external auditors of the Company. The Auditor’s
Report to the Shareholders, which describes the scope of their examination and
expresses their opinion, is presented herein. The Audit Committee of the Board of
Directors, whose members are not employees of the Company, meets with
management and the independent auditors to satisfy itself that the responsibilities of
the respective parties are properly discharged and to review the consolidated
financial statements before they are presented to the Board of Directors for approval.
John N. Wallace
C. Christopher Beck, CPA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECRETARY AND CHIEF FINANCIAL
OFFICER
November 8, 2013
Consolidated Financial Statements
18
Caldwell Partners –
November 8, 2013
Independent Auditor’s Report
To the Shareholders of
The Caldwell Partners International Inc.
We have audited the accompanying consolidated financial statements of The Caldwell Partners International Inc. and its
subsidiaries, which comprise the consolidated statements of financial position as at August 31, 2013 and August 31, 2012
and the consolidated statements of earnings (loss), comprehensive earnings, changes in equity and cash flows for the years
then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of The
Caldwell Partners International Inc. and its subsidiaries as at August 31, 2013 and August 31, 2012 and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
November 8, 2013
Caldwell Partners –
Consolidated Financial Statements
19
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in $Canadian)
Assets
Current assets
Cash and cash-equivalents
Marketable securities (note 4)
Accounts receivable
Income taxes receivable
Prepaid expenses and other assets
Non-current assets
Restricted cash
Advances
Property and equipment (note 5)
Intangible assets (note 6)
Goodwill (note 7)
Deferred income taxes (note 12)
Total assets
Liabilities
Current liabilities
Accounts payable
Compensation payable (notes 10 and 11)
Dividends payable (note 14)
Taxes payable
Deferred revenue (note 11)
Non-current liabilities
Non-current severance accrual (note 10)
Long-term incentive accrual (note 14)
Equity attributable to owners of the Company
Share capital (note 14)
Contributed surplus (note 14)
Accumulated other comprehensive income
Deficit
Total equity
Total liabilities and equity
As at
August 31
2013
As at
August 31
2012
7,612,957
3,576,811
7,088,555
-
1,060,998
19,339,321
255,012
292,035
1,360,646
447,434
1,039,922
-
6,494,246
3,303,044
6,122,577
49,501
775,572
16,744,940
252,966
92,023
1,504,015
488,647
973,458
73,302
22,734,370
20,129,351
1,345,146
9,156,182
255,983
13,741
1,357,718
12,128,770
148,750
231,231
12,508,751
4,080,020
16,247,987
580,959
(10,683,347)
10,225,619
22,734,370
1,007,926
7,673,729
254,782
-
-
8,936,437
-
186,267
9,122,704
4,016,020
16,245,848
122,292
(9,377,513)
11,006,647
20,129,351
The accompanying notes are an integral part of these consolidated financial statements.
Signed on behalf of the Board:
G. Edmund King
Chair of the Board
Kathryn A. Welsh
Chair of the Audit Committee
Consolidated Financial Statements
20
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in $Canadian)
Revenues (note 11)
Cost of sales (notes 8 and 11)
Gross profit
Expenses (note 8)
General and administrative (note 10)
Sales and marketing
Foreign exchange gain
Operating profit (loss)
Investment income
Earnings (loss) before income tax
Income tax (note 12)
Net earnings (loss) for the year attributable to owners of the Company
Earnings (loss) per share (note 13)
Basic and diluted
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE EARNINGS
(in $Canadian)
Twelve months ended
August 31
2013
2012
33,802,994
32,703,717
26,005,284
7,797,710
24,582,103
8,121,614
7,275,173
689,686
(35,035)
7,929,824
(132,114)
6,534,699
616,726
(40,696)
7,110,729
1,010,885
12,713
14,941
(119,401)
1,025,826
162,503
(281,904)
44,818
981,008
($0.017)
$0.058
Twelve months ended
August 31
2013
2012
Net earnings (loss) for the year
(281,904)
981,008
Other comprehensive income:
Items that may be reclassified subsequently to net income
Unrealized gain on marketable securities (net of tax - $0)
Cumulative translation adjustment (net of tax - $0)
Comprehensive earnings for the year attributable to owners of the Company
273,767
184,900
176,763
176,217
31,002
1,188,227
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
21
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in $Canadian)
Accumulated Other Comprehensive
Income (Loss)
Deficit
Capital Stock
Contributed
Surplus
Cumulative
Translation
Adjustment
Unrealized
Gains on
Marketable
Securities
Total
Equity
Balance - September 1, 2011
(9,848,957)
16,064,078
4,179,399
(315,525)
230,598
10,309,593
Net earnings for the year
Dividend payments declared (note 14)
Share based payment expense
Reduction of stated capital (note 14)
Change in unrealized gains on
marketable securities
Change in cumulative translation adjustment
981,008
(509,564)
-
-
-
-
-
-
-
-
-
18,391
(12,048,058)
12,048,058
-
-
-
-
-
-
-
-
-
-
-
-
-
981,008
(509,564)
18,391
-
176,217
176,217
31,002
-
31,002
Balance - August 31, 2012
(9,377,513)
4,016,020
16,245,848
(284,523)
406,815
11,006,647
Net loss for the year
(281,904)
Dividend payments declared (note 14)
(1,023,930)
Employee share option plan share issue
Share-based payment expense
Change in unrealized gain on
marketable securities
Change in cumulative translation adjustment
-
-
-
-
-
-
-
-
64,000
(14,776)
-
-
-
16,915
-
-
-
-
-
-
-
-
-
-
-
(281,904)
(1,023,930)
49,224
16,915
273,767
273,767
184,900
-
184,900
Balance - August 31, 2013
(10,683,347)
4,080,020
16,247,987
(99,623)
680,582
10,225,619
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
22
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in $Canadian)
Cash flow provided by (used in)
Operating activities
Net earnings (loss) for the year
Adjustments for:
Depreciation
Amortization
Share-based payment expense
Unrealized foreign exchange on subsidiary loans
Non-cash incentive compensation
Deferred taxes
Deferred revenue
Taxes paid
Increase in long-term severance accrual
Net changes in working capital
Decrease (increase) in accounts receivable
Decrease (increase) in income taxes receivable
Decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable
(Decrease) increase in compensation payable
Increase in taxes payable
(Decrease) increase in contingent consideration
Increase in dividends payable
Decrease in current portion of incentive accrual
Net cash provided by (used in) operating activities
Investment activities
(Increases) decrease in advances
Increase in restricted cash
Additions to property and equipment
Net cash used in investing activities
Financing activities
Dividend payments
Share issuance from employee share option plan
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Twelve months ended
August 31
2013
2012
(281,904)
981,008
`
400,283
71,563
21,339
(164,300)
44,964
77,403
1,348,890
-
148,750
(722,625)
49,501
(248,119)
303,171
1,250,695
12,465
-
1,201
-
2,313,277
(177,627)
(2,046)
(221,360)
(401,033)
(1,023,930)
44,800
(979,130)
185,597
1,118,711
6,494,246
7,612,957
390,406
115,016
18,391
(75,067)
132,777
-
-
(44,418)
-
484,368
74,473
409,015
(455,849)
(1,169,804)
-
(510,286)
-
(530,250)
(180,220)
79,855
(2,966)
(187,202)
(110,313)
(254,782)
-
(254,782)
95,477
(449,838)
6,944,084
6,494,246
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Financial Statements
23
Caldwell Partners –
THE CALDWELL PARTNERS INTERNATIONAL INC.
Notes to Consolidated Financial Statements
For The Year Ended August 31, 2013
(in $ Canadian)
1. General Information
The Caldwell Partners International Inc. (the Company) is an executive search consulting firm specializing in
recruiting executives on behalf of its clients. The Company contracts with its clients, on an assignment basis, to
provide consulting advice on the identification, evaluation, assessment and recommendation of qualified
candidates for specific positions. The Company concentrates its activities on locating executives to fill senior
executive positions.
The Company was incorporated by articles of incorporation under the Business Corporations Act (Ontario) on
August 22, 1979 and is listed on the Toronto Stock Exchange (symbol: CWL). With operations in both Canada
and the United States, the Company’s head office is located at 165 Avenue Road, Toronto, Ontario.
The Board of Directors approved these consolidated financial statements for issue on November 8, 2013.
2. Basis of Presentation
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
3. Significant Accounting Policies, Judgments and Estimation Uncertainty
Significant Accounting Policies
The significant accounting policies used in the preparation of these consolidated financial statements are
described below.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including available-for-sale
marketable securities.
Consolidation
These consolidated financial statements include the assets and liabilities and results of operations of the
Company and its subsidiaries: The Caldwell Partners International Ltd., Prince Arthur Advertising Inc.,
Caldwell Interim Executives Inc. and Caldwell Investments Inc. All intercompany transactions, balances and
unrealized gains and losses from intercompany transactions are eliminated on consolidation.
Subsidiaries are those entities which the Company controls by having the power to govern the financial and
operating policies. Subsidiaries are fully consolidated from the date on which control is obtained and are de-
consolidated from the date that control ceases.
Acquisitions are accounted for using the acquisition method. The acquisition method involves the recognition of
the acquiree’s identifiable assets and liabilities, including contingent liabilities, regardless of whether they were
recorded in the financial statements prior to acquisition. On initial recognition, the assets and liabilities of the
acquired subsidiary are included in the consolidated balance sheet at their fair values. Goodwill is determined
Consolidated Financial Statements
24
Caldwell Partners –
after separately identifying intangible assets. Goodwill represents the excess of acquisition costs over the fair
value of the Company’s share of identifiable assets of the acquiree at the date of acquisition. Any excess of
identifiable net assets over acquisition cost is recognized in profit or loss immediately after acquisition.
Transaction costs are expensed as incurred.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Chief Executive Officer.
Foreign currency translation
(i) Functional and presentation currency
The financial statements of the parent company and each subsidiary in the consolidated financial statements of
The Caldwell Partners International Inc. are measured using the currency of the primary economic environment
in which the subsidiary operates (the “functional currency”). The functional and presentation currency of the
Company is the Canadian dollar. The functional currency of the subsidiary located in the United States is the US
dollar.
The financial statements of subsidiaries that have a functional currency different from the presentation currency
are translated into Canadian dollars as follows: assets and liabilities – at the closing rate at the date of the
statement of financial position, and income and expenses – at the average rate of the period (as this is considered
a reasonable approximation of the actual rates prevailing at the transaction dates). All resulting changes are
recognized in other comprehensive income as cumulative translation adjustments.
If the Company disposes of its entire interest in a foreign subsidiary, or loses control over a foreign subsidiary,
the foreign currency gains or losses accumulated in other comprehensive income related to the foreign
subsidiary are recognized in profit or loss.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of these transactions. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in currencies other than an entity’s functional currency are recognized in the consolidated
statement of earnings, within other gains and losses.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid
investments with original maturities of three months or less.
Restricted cash
Restricted cash includes a term deposit set aside by a Canadian financial institution for collateral security on
foreign exchange contracts entered into by the Company.
Advances
Advances are sign-on payments made to employees to join the Company. Such amounts may be recouped if the
employee leaves the Company before a contractually stipulated period of time has lapsed, usually 24 to 36
months from their start date. The advances are amortized to expenses on a straight line basis over the life of the
contractual recoupment period.
Financial instruments
Caldwell Partners –
Consolidated Financial Statements
25
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions
of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have
expired or have been transferred and the Company has transferred substantially all risks and rewards of
ownership.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a
legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or
realize the asset and settle the liability simultaneously. Financial liabilities are derecognized when the obligation
specified in the contract is discharged, cancelled or expires.
At initial recognition, the Company classifies its financial instruments in the following categories depending on
the purpose for which the instruments were acquired:
(i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is classified in
this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are
also included in this category. The only instruments held by the Company classified in this category are short-
term foreign exchange contracts to sell U.S. currency (see (v) below).
Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs
are expensed in the consolidated statement of earnings. Gains and losses arising from changes in fair value are
presented in the statement of earnings within other gains and losses (net) in the period in which they arise.
Financial assets and liabilities at fair value through profit or loss are classified as current except for the portion
expected to be realized or paid beyond twelve months of the balance sheet date, which is classified as non-
current.
(ii) Available-for-sale investments: Available-for-sale investments are non-derivatives that are either designated
in this category or not classified in any of the other categories. The Company's available-for sale assets comprise
its investments in marketable securities.
Available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently
carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive
income. Available-for-sale investments are classified as current, unless the investment matures beyond twelve
months.
Interest on available-for-sale investments, calculated using the effective interest method, is recognized in the
statement of earnings as part of investment income. Dividends on available-for-sale equity instruments are
recognized in the statement of earnings as part of other gains and losses when the Company's right to receive
payment is established. When an available-for-sale investment is sold or impaired, the accumulated gains or
losses are moved from accumulated other comprehensive income to the statement of earnings and are included
in investment income.
(iii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. The Company's loans and receivables comprise accounts
receivable and cash and cash equivalents, and are included in current assets due to their short-term nature. Loans
and receivables are initially recognized at the amount expected to be received, less, when material, a discount to
reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized
cost using the effective interest method less a provision for impairment.
(iv) Other financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts payable,
compensation payable and dividends payable which are initially recognized at the amount required to be paid,
less, when material, a discount to reduce the payables to fair value. Subsequently, accounts payable are
measured at amortized cost using the effective interest method.
Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they
are presented as non-current liabilities.
Consolidated Financial Statements
26
Caldwell Partners –
(v) Derivative financial instruments: The Company has entered into short-term foreign-exchange contracts to
sell U.S. currency. Foreign exchange contracts are purchased from a reputable financial institution. The
Company has a risk of loss in the event that the counter-party to the transaction is unable to fulfill its contractual
obligation. All foreign exchange contracts are valued at fair value at each reporting period. Gains and losses on
forward-exchange contracts are included in general and administrative expense on the consolidated statement of
earnings.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset (other
than a financial asset classified as fair value through profit or loss) is impaired. If such evidence exists, the
Company recognizes an impairment loss, as follows:
(i) Financial assets carried at amortized cost: The loss is the difference between the amortized cost of the loan
or receivable and the present value of the estimated future cash flows, discounted using the instrument's original
effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly
through the use of an allowance account.
(ii) Available-for-sale financial assets: The impairment loss is the difference between the original cost of the
asset and its fair value at the measurement date, less any impairment losses previously recognized in the
statement of earnings. This amount represents the cumulative loss in accumulated other comprehensive income
that is reclassified to net income.
Impairment losses on financial assets carried at amortized cost and available for sale financial assets are
reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to
an event occurring after the impairment was recognized. Impairment losses on available-for-sale equity
investments are not reversed.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are
included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and the cost can be measured
reliably. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs
are charged to the statement of earnings during the period in which they are incurred.
The major categories of property and equipment are depreciated as follows:
Furniture and equipment
Computer equipment
Computer application software straight-line over three years
Leasehold improvements
20% declining balance
30% declining balance
straight-line over the term of the lease
Residual values, methods of depreciation and useful lives of the assets are reviewed annually and adjusted if
appropriate.
Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the
carrying amount of the asset and are included as part of other gains and losses in the statement of earnings.
Identifiable intangible assets
The Company's intangible assets are stated at cost less accumulated amortization and are comprised of client
lists and non-competition and non-solicitation agreements. These intangible assets are amortized on a straight-
line basis in the statement of earnings over their estimated useful lives of 3 to 10 years. Also included in the
Consolidated Financial Statements
27
Caldwell Partners –
intangible assets are software costs that are not integral to the related hardware. These software costs are being
amortized over 3 years.
Impairment of non-financial assets
Property and equipment and intangible assets (other than goodwill) are tested for impairment when events or
changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of
measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units or CGUs). The recoverable amount is the higher of an asset's fair
value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant
asset or CGU). An impairment loss is recognized for the amount by which the asset's carrying amount exceeds
its recoverable amount.
Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists.
Goodwill acquired through a business combination is allocated to each CGU or group of CGUs that are
expected to benefit from the related business combination. A group of CGUs represents the lowest level within
the Company at which the goodwill is monitored for internal management purposes, which is not higher than an
operating segment.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when events
or circumstances warrant such consideration.
Stock-based compensation
The Company grants stock options and restricted stock units periodically to certain employees.
Stock options currently outstanding vest over two or three years and have a contractual life of five years. Each
tranche in an award is considered a separate award with its own vesting period and grant date fair value. Fair
value of each tranche is measured at the date of grant using the Black-Scholes option pricing model.
Compensation expense is recognized over the tranche's vesting period by increasing contributed surplus based
on the number of awards expected to vest. Any subsequent changes in fair value to a vested award are
recognized in the consolidated statement of earnings in the period in which they occur.
Restricted stock units are common shares of the Company that are restricted to be issued to members of the
management team. These restricted stock units cliff vest three years from the date of grant, and may be settled
either in shares or in cash. The Board of Directors may elect to settle in either cash or shares; should the Board
of Directors elect to settle in shares, the individual may elect to receive up to half of the settlement in cash. Fair
value of each tranche is based on the fair value of the awards at the date of grant, with the fair value being
updated at each reporting date. Compensation expense is recognized on a straight-line basis over the vesting
period.
The awards have been recorded as a current or long-term incentive accrual depending on when they vest.
Commission and bonus plans
The Company recognizes a liability and an expense for bonuses and commissions, based on performance
measures relevant to the particular employee group. Revenue-producing employees earn bonuses tied directly to
individual and team revenue production. Management bonuses are primarily determined based on achievement
of planned revenue and operating profit levels, approved by the Board of Directors at the outset of the fiscal
year. The Company recognizes the expense and related liability in the year such performance levels are attained.
To the extent revenue is deferred for recognition in a future period, the Company will also defer the related
amount of estimated compensation expense directly associated with such deferred revenue.
Provisions
Caldwell Partners –
Consolidated Financial Statements
28
Provisions for legal claims, where applicable, are recognized in other liabilities when the Company has a present
legal or constructive obligation as a result of past events and it is more likely than not that an outflow of
resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are
measured at management's best estimate of the expenditure required to settle the obligation at the end of the
reporting period, and are discounted to present value where the effect is material.
Income tax
Income tax comprises current and deferred tax. Income tax is recognized in the statement of earnings except to
the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case
the income tax is also recognized in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of
previous years.
In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is
determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at
the balance sheet date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax
assets are recognized to the extent that it is probable that future taxable profit will be available against which the
temporary difference can be recognized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where
the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are presented as non-current.
Revenue
Revenue consists of retainers and indirect expenses billed to clients based on terms set forth in signed
engagement letters with each client. The Company is typically paid a retainer for its executive search services,
equal to one-third of the position’s estimated first year compensation. The Company’s standard practice is to bill
its clients for its retainer and indirect expenses in one-third increments over a three-month period commencing
in the month of a client’s acceptance of the contract. Any fees earned in excess of the retainer or fees that are
contingent on a candidate’s future compensation are billed when actual compensation of the placed candidate is
known. Indirect expenses are generally calculated as a percentage of the retainer with certain dollar limits per
search.
Revenue is recognized when it is probable that that the economic benefits will flow to the Company and service
has been provided, the fee is determinable, and collectability is reasonably assured. Revenue from standard
executive search engagements is recognized over the expected average performance period, in proportion to the
estimated effort to fulfill the Company’s obligations under the engagement terms. To the extent that there are
differences between the estimated percentage of completion based on the expected average performance period
and amounts billed the Company defers a portion of revenue to be recognized in a future period and records this
as deferred revenue on the consolidated balance sheet.
Revenue in excess of the retainer, resulting from actual compensation of the placed candidate exceeding the
estimated compensation, is recognized upon completion of the executive search when the amount of the
additional fee is known. Revenue from certain non-standard executive search engagements is recognized in
accordance with the completion of the engagement deliverables.
Cost of sales
Cost of sales includes direct costs associated with the generation of revenue, being both variable and fixed
compensation and related costs of employees involved in search activities. When revenue is deferred, the related
Consolidated Financial Statements
29
Caldwell Partners –
amount of estimated compensation expense directly associated with such deferred revenue is also deferred. This
expense deferral is recorded as a reduction in compensation payable on the consolidated balance sheet.
Leases
Leases are classified as either operating or finance, based on the substance of the transaction at the inception of
the lease.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases, net of any incentives received from the
lessor, are charged to profit or loss within general and administrative expenses on a straight line basis over the
period of the lease.
The Company leases certain property and equipment. Leases of property and equipment, where the Company
has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are
capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present
value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges.
The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of
the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period. The property and equipment acquired under
finance leases is depreciated over the shorter of the useful life of the asset and the lease term.
Currently, all of the Company’s leases pertain to its office space and are considered operating leases.
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are
recognized as a deduction from equity.
Dividends
Dividends on common shares are recognized in the Company's consolidated financial statements in the period in
which the dividends are approved by the Board of Directors of the Company.
Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the net income for the period attributable to equity
owners of the Company by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive
instruments. The number of shares included with respect to options and similar instruments is computed using
the treasury stock method. The Company’s potentially dilutive common shares comprise stock options and
restricted stock units granted to employees.
Accounting Standards Issued But Not Yet Applied
International Financial Reporting Standard 9, Financial Instruments (IFRS 9)
IFRS 9, Financial Instruments, was issued in November 2009 and addresses classification and measurement for
financial assets and replaces the multiple category and measurement models in IAS 39 - Financial Instruments
— Recognition and Measurement (IAS 39) for debt instruments with a new mixed measurement model having
only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for
measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at
fair value through other comprehensive income. Where such equity instruments are measured at fair value
through other comprehensive income, dividends are recognized in profit or loss to the extent not clearly
representing a return of investment; however, other gains and losses (including impairments) associated with
such instruments remain in accumulated comprehensive income indefinitely.
Consolidated Financial Statements
30
Caldwell Partners –
Requirements for financial liabilities were added in October 2010 and they largely carried forward existing
requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair value
through profit and loss would generally be recorded in other comprehensive income. This standard is required to
be applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. The
Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
The following revised standards and amendments are effective for annual periods beginning on or after January
1, 2013 with earlier application permitted.
IFRS 10 - Consolidated Financial Statements (IFRS 10), requires an entity to consolidate an investee when it is
exposed, or has rights, to variable returns from its involvement in the investee and has the ability to affect those
returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has
the power to govern the financial and operating policy of an entity so as to obtain benefits from its activities.
IFRS 10 replaces SIC 12 - Consolidation-Special Purpose Entities and parts of IAS 27 - Consolidated and
Separate Financial Statements. The Company has assessed that the adoption of this IFRS will not impact the
Company’s consolidated financial statements.
IFRS 13 - Fair Value Measurement, is a comprehensive standard for fair value measurement and disclosure
requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would
be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at
the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS,
guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value
measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. The
adoption of this IFRS will not have a material impact on the Company’s consolidated financial statements.
However, it will impact the annual disclosures and these disclosures could be extensive.
There are no other standards or interpretations that are not yet effective that would be expected to have a
material impact on the Company.
Critical accounting estimates and judgments
The Company makes estimates and assumptions concerning the future that will, by definition, seldom equal
actual results. The following are the estimates and judgments applied by management that most significantly
affect the Company's financial statements. These estimates and judgments have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year. The following
discussion sets forth management’s most significant estimates and assumptions in determining the value of
assets and liabilities, and the most significant judgments in applying accounting policies.
Revenue recognition
The Company’s method of revenue recognition requires it to estimate the expected average performance period
and the percentage of completion, based on the proportion of the estimated effort to fulfill the Company’s
obligations throughout the expected average performance period for its executive searches. Differences between
the estimated percentage of completion and the amounts billed will give rise to a deferral of revenue to a future
period. Changes in the average performance period or the proportion of effort expended throughout the
performance period for its executive searches could lead to an under or overvaluation of revenue. Further
information on deferred revenue is included in note 11.
Allowance for doubtful accounts
Estimates are used in determining the allowance for doubtful accounts related to trade receivables. The estimates
are based on management’s best assessment of the collectability of the related receivable balance based, in part,
on the age of the specific receivable balance. An allowance is established when the likelihood of collecting the
account has significantly diminished. Future collections of receivables that differ from management’s current
estimates would affect the results of operation in future periods.
Impairment of Goodwill
Consolidated Financial Statements
31
Caldwell Partners –
The Company tests at least annually whether goodwill is subject to any impairment in accordance with the
accounting policy. Various assumptions are made in performing this test, including estimates of future revenue
streams, operating costs and discount rates. These assumptions are disclosed in note 7. Future results that differ
from management’s current estimates would affect the results of operation in future periods.
4. Marketable Securities
The Company has investments in managed funds (classified as available for sale financial assets) which are
comprised of the following:
Fair
Value
3,576,811
3,303,044
Cost, net
of writedowns
& provisions
2,896,231
2,896,231
August 31
2013
2012
During fiscal 2013 and 2012, the Company recorded no realized gains or losses on disposition of available for
sale marketable securities. An unrealized gain of $273,767 was recognized as part of other comprehensive
income during the year (2012: $176,217).
furniture and
equipment
computer
equipment
computer application
software
leasehold
improvements
total
5. Property and Equipment
Year ended August 31, 2012:
Opening net book value
Additions
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2012:
590,299
67,383
(126,782)
4,527
535,427
196,772
62,239
(69,243)
978
190,746
Cost
Accumulated depreciation
Net book value
2,165,987
(1,630,560)
535,427
1,986,694
(1,795,948)
190,746
Year ended August 31, 2013:
Opening net book value
Additions
Depreciation for the year
Exchange differences
Closing net book value
At August 31, 2013:
535,427
92,530
(116,064)
19,314
531,207
190,746
81,783
(70,987)
7,124
208,666
Cost
Accumulated depreciation
Net book value
2,277,831
(1,746,624)
531,207
2,075,601
(1,866,935)
208,666
95,269
52,301
(59,333)
(442)
87,795
682,641
(594,846)
87,795
87,795
35,745
(77,281)
4,198
50,457
722,584
(672,127)
50,457
818,381
5,279
(135,048)
1,435
690,047
1,700,721
187,202
(390,406)
6,498
1,504,015
2,575,972
(1,885,925)
690,047
7,411,294
(5,907,279)
1,504,015
690,047
11,302
(135,951)
4,918
570,316
1,504,015
221,360
(400,283)
35,554
1,360,646
2,592,192
(2,021,876)
570,316
7,668,208
(6,307,562)
1,360,646
Depreciation of property and equipment is included in general and administrative expenses in the consolidated
statement of earnings (loss). Disposals of fully depreciated assets have been derecognized amounting to cost and
accumulated depreciation of $182,753 (2012: $0).
Consolidated Financial Statements
32
Caldwell Partners –
6. Intangible Assets
Year ended August 31, 2012:
Opening net book value
Amortization for the year
Exchange differences
Closing net book value
At August 31, 2012:
Cost
Accumulated amortization
Net book value
Year ended August 31, 2013:
Opening net book value
Amortization for the year
Exchange differences
Closing net book value
At August 31, 2013:
Cost
Accumulated amortization
Net book value
client
lists
non-competition & non-
solicitation agreements
computer
software
total
577,196
(91,742)
3,193
488,647
736,971
(248,324)
488,647
488,647
(71,563)
30,350
447,434
767,321
(319,887)
447,434
12,551
(14,514)
1,963
-
49,689
(49,689)
-
-
-
-
-
49,689
(49,689)
-
7,575
(8,760)
1,185
-
1,266,029
(1,266,029)
-
-
-
-
-
-
-
-
597,322
(115,016)
6,341
488,647
2,052,689
(1,564,042)
488,647
488,647
(71,563)
30,350
447,434
817,010
(369,576)
447,434
Amortization of intangible assets is included in general and administrative expenses in the consolidated
statement of earnings (loss). Disposals of fully amortized assets have been derecognized amounting to cost and
accumulated amortization of $1,266,029 (2012: $0).
7. Goodwill
In assessing goodwill for impairment at August 31, 2013 and 2012, the Company compared the aggregate
recoverable amount of the assets included in the cash generating unit (CGU) in its US segment to its respective
carrying amount. The recoverable amount has been determined based on the estimated value in use of the CGU
using a one year cash flow budget. For periods beyond the budget period, cash flows were extrapolated using
growth rates in the table below. Assumptions made were as follows:
Average growth rate
Expected gross margin
Discount rate
2013
2012
0%
27%
8%
-5%
28%
8%
The impairment tests performed resulted in no impairment at August 31, 2013 or 2012.
Consolidated Financial Statements
33
Caldwell Partners –
8. Nature of Expenses
Compensation costs
Occupancy costs
Marketing and business development costs
Depreciation
Amortization
Other
9. Compensation of Key Management
2013
2012
28,449,009
3,142,354
689,686
400,283
71,563
1,182,213
33,935,108
26,528,286
2,978,331
616,726
390,406
115,016
1,064,067
31,692,832
Key management includes the Board of Directors and named executive officers of the Company. Compensation
awarded to key management included:
Salaries and short-term benefits
Share-based payments and restricted stock units
10. Severance Accrual
2013
2012
1,230,289
237,552
1,467,841
1,237,539
123,878
1,361,417
During fiscal 2013, the Company reached an agreement to pay an employee a severance of $446,250. The
severance is to be paid out monthly in equal cash installments to the end May 2015. Under certain circumstances
for the former employee, the company may recoup a portion of the settlement, but no such recovery has been
recorded due to its uncertainty. A liability has been recorded on the consolidated statement of financial position
at August 31, 2013, with the current portion of $210,000 in compensation payable and $148,750 in the non-
current severance accrual.
11. Deferred Revenue
The Company’s method of revenue recognition requires it to estimate the expected average performance period
and the proportion of the estimated effort to fulfill the Company’s obligations throughout the average
performance period for its executive searches. Differences between the revenue recognition period and the
billing period will give rise to a deferral of revenue. When this occurs the Company defers a portion of the
amounts billed to be recognized in a future period.
During 2012 it was determined that the performance period approximated the billing period, and accordingly no
deferred revenue was recorded. During 2013, based on the ability to access enhanced search performance
metrics, the Company changed its estimate of the expected average performance period and its method of
estimating the percentage of completion which resulted in a performance period longer than the billing period.
As a result, the change in estimate was applied prospectively and during 2013 the Company deferred revenue of
$1,357,718 (2012: $0), with such amount to be recognized during a future period.
When revenue is deferred, the related amount of estimated compensation expense directly associated with such
deferred revenue is also deferred. Accordingly, during 2013 the Company deferred compensation expense of
$582,038 (2012: $0) to be expensed in the future period in which the related deferred revenue is recognized.
This expense deferral is recorded as a reduction in compensation payable.
Consolidated Financial Statements
34
Caldwell Partners –
12. Income Taxes
Current tax:
Deferred tax:
Current tax on net earnings for the year
Origination and reversal of temporary differences
2013
2012
89,201
45,286
73,302
(468)
162,503
44,818
The tax on the Company's earnings (loss) before income tax differs from the amount that would arise using the weighted
average tax rate applicable to earnings (loss) of the consolidated entities as follows:
Combined statutory income tax rate
Utilization of deferred tax asset not previously recognized
Non-deductible expenses
Prior years taxes
Tax rate differences
Other
The weighted average applicable tax rate was 37.5% (2012: 4.4%).
2013
2012
50.8%
(147.1%)
(22.8%)
(21.5%)
-
4.5%
(136.1%)
28.6%
(28.4%)
3.2%
-
0.9%
0.1%
4.4%
The analysis of deferred tax assets and liabilities is as follows:
2013
2012
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months
Deferred tax assets to be recovered within 12 months
265,456
100,620
319,379
125,897
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 12 months
Deferred tax liabilities to be recovered within 12 months
Deferred tax assets (net)
(265,456)
(100,620)
-
(319,379)
(52,595)
73,302
The movement of the deferred income tax account is as follows:
2013
2012
As of September 1
Credit to statement of earnings (loss)
As of August 31
73,302
(73,302)
-
72,834
468
73,302
The movement in deferred income tax assets and liabilites during the year, without taking into consideration the offsetting of
balances within the same tax jurisdiction, is as follows:
Deferred tax assets
At September 1, 2011
Credited to the statement of earnings (loss)
At August 31, 2012
Credited to the statement of earnings (loss)
At August 31, 2013
Compensation
payable
Non-Capital
losses
Total
72,834
468
73,302
(73,302)
-
351,395
20,579
371,974
(181,277)
190,697
424,229
21,047
445,276
(79,201)
366,075
Consolidated Financial Statements
35
Caldwell Partners –
Deferred tax liabilities
At September 1, 2011
(Charged)/Credited to the statement of earnings (loss)
At August 31, 2012
(Charged)/Credited to the statement of earnings (loss)
At August 31, 2013
Excess Carrying
Value of P&E over
tax base
Other
Total
351,395
(32,016)
319,379
(53,924)
265,455
-
52,595
52,595
48,025
100,620
351,395
20,579
371,974
(5,899)
366,075
Deferred income tax assets are recognized for tax loss carry-forwards and other temporary differences to the extent that
the realization of the related tax benefit through future taxable earnings are probable. The Company did not recognize
deferred income tax assets of $1,745,084 (2012: $2,124,000) that can be carried forward against future taxable income.
As at August 31, 2013, the Company has non-capital losses with the following expiry dates available to reduce income
of future years.
Expiry
Amount
2029
2031
1,349,582.00
422,447.00
The Company also has capital losses of $3,531,000 that can only be utilized against capital gains and are without expiry date.
13. Earnings (loss) per share
(i) Basic
Basic earnings (loss) per share are calculated by dividing the net earnings (loss) attributable to owners of
the Company by the weighted average number of common shares outstanding during the years.
2013
2012
Net earnings (loss) for the year attributable to owners of the Company
Weighted average number of Common Shares outstanding
Basic earnings per share
(281,904)
17,048,628
($0.017)
981,008
16,985,505
$0.058
(ii) Diluted
Diluted earnings (loss) per share is calculated by adjusting the weighted average number of common shares
outstanding to assume conversion of all dilutive potential common shares. A calculation is done to
determine the number of shares that could have been acquired at fair value (determined as the average
market price of the Company’s outstanding shares for the period), based on the exercise prices attached to
the stock options currently outstanding. The number of shares calculated above is compared with the
number of shares that would have been issued assuming exercise of the stock options.
Consolidated Financial Statements
36
Caldwell Partners –
2013
2012
Net earnings (loss) for the year attributable to owners of the Company
(281,904)
981,008
Weighted average number of Common Shares outstanding
adjustments for:
- share options
Weighted average number of common shares for diluted
earnings (loss) per share
Diluted earnings per share
17,048,628
16,985,505
77,389
18,188
17,126,017
17,003,693
($0.017)
$0.058
In the current year the impact of the share options is anti-dilutive therefore the diluted loss per share is equal
to the basic loss per share.
14. Capital Stock
Common Shares
As at August 31, 2013 the authorized share capital of the Company consists of an unlimited number of Common
Shares of which 17,065,505 are issued and outstanding (August 31, 2012: 16,985,505). On November 22, 2012,
a member of the management team exercised options to purchase 80,000 Common Shares of the Company at an
exercise price of $0.56 per share.
The holders of Common Shares are entitled to share equally, share for share, in all dividends declared by the
Company and equally in the event of a liquidation, dissolution or winding-up of the Company or other
distribution of the assets among shareholders.
Prior to May 1, 2012, the Company had suspended dividend payments given its deficit position. On May 1,
2012, shareholders of the Company approved a special resolution to reduce the stated capital of the Company by
75%. This transaction resulted in a $12,048,058 reduction of stated capital with an equivalent increase in
contributed surplus. As a result, the Company was able to reinstitute dividend payments.
A summary of dividends declared during fiscal 2012 and 2013 to-date is as follows:
declaration date
May 1, 2012
July 23, 2012
November 15, 2012
January 11, 2013
April 11, 2013
July 11, 2013
payment date
June 15, 2012
September 14, 2012
December 14, 2012
March 15, 2013
June 14, 2013
September 13, 2013
dividend
per share
$0.015
$0.015
$0.015
$0.015
$0.015
$0.015
aggregate
dividends declared
$
254,782
$
254,782
$
255,983
$
255,983
$
255,982
$
255,982
On June 5, 2013, the Toronto Stock Exchange accepted the Company’s notice of intention to purchase through a
normal course issuer bid up to 853,275 of its Common Shares. No shares have been repurchased as of
November 8, 2013.
Consolidated Financial Statements
37
Caldwell Partners –
Stock Options
Stock options are granted periodically to directors, officers and employees of the Company. Cash received upon
exercise of options for common shares is credited to capital stock. Total outstanding stock options are
summarized as follows:
2013
2012
number of
options
weighted
average
number of
options
weighted
average
outstanding
exercise price
outstanding
exercise price
$0.97
-
$0.68
$0.89
720,000
-
275,000
995,000
680,000
Outstanding at beginning of period
Options exercised
Options granted
Outstanding at end of period
995,000
(80,000)
100,000
1,015,000
$0.89
$0.56
$1.02
$0.93
Exercisable at end of period
777,500
A summary of options granted and exercised is as follows:
date
September 11, 2008
November 16, 2009
February 6, 2012
November 22, 2012
April 11, 2013
Number
of options
600,000
120,000
275,000
(80,000)
100,000
1,015,000
action
options granted
options granted
options granted
options exercised
options granted
strike price
$1.05
$0.56
$0.68
$0.56
$1.02
All options currently outstanding vest ratably over two or three years and have a contractual life of five years.
Options have an exercise price equal to the market value of the common shares on the date of issuance. Stock
option expense of $21,339 has been recorded in the year ended August 31 (2012: $18,391) within general and
administrative expenses. The fair value of the options granted in the previous year was determined using the
Black-Scholes option pricing model (using an expected volatility of 24%, a risk-free interest rate of 2%, a
dividend yield of 5%, and an estimated life of 4 years). The fair value of the options granted in the current year
was determined using the Black-Scholes option pricing model (using an expected volatility of 15.5%, a risk-free
interest rate of 1%, a dividend yield of 6%, and an estimated life of 4 years)
Restricted Stock Units
The long-term incentive accrual represents a provision for a restricted stock unit plan issued to members of the
Company’s management team.
Restricted stock units are common shares of the Company that are restricted to be issued to members of the
management team. These restricted stock units cliff vest three years from the date of grant. The Board of
Directors may elect to settle in either cash or shares; should the Board of Directors elect to settle in shares, the
individual may elect to receive up to half of the settlement in cash. The estimated cost of this plan is being
amortized straight-line over the three year vesting period.
Consolidated Financial Statements
38
Caldwell Partners –
On January 12, 2012, 441,000 restricted stock units were granted to members of the management team based on
a current market price of $0.63 per share. On November 15, 2012, 294,667 restricted stock units were granted to
members of the management team based on a current market price of $0.75 per share.
Total outstanding restricted stock units are summarized as follows:
2013
2012
number of
RSUs
outstanding
weighted
average
grant price
number of
RSUs
outstanding
weighted
average
grant price
Outstanding at beginning of period
RSUs cancelled
RSUs granted
Outstanding at end of period
836,000
(205,333)
294,667
925,334
$0.62
$0.65
$0.75
$0.65
395,000
-
441,000
836,000
$0.60
-
$0.63
$0.62
RSU expense of $282,965 has been recorded in the year ended August 31, 2013 (2012 – $132,779) within
general and administrative expenses.
15. Segmented Information
The Company has operations in both Canada and the United States. Both geographic segments provide retained
executive search consulting services to clients.
The following provides a reconciliation of the Company’s statement of earnings (loss) by geographic segment to
the consolidated results:
Canada
2013
United States
total
Canada
2012
United States
total
Revenues
11,551,156
22,251,838
33,802,994
10,181,559
22,522,158
32,703,717
Gross profit
General and administrative
Sales and marketing
Foreign exchange gain (loss)
3,489,388
(3,281,123)
(173,723)
43,362
4,308,322
(3,994,050)
(515,963)
(8,327)
7,797,710
(7,275,173)
(689,686)
35,035
3,592,976
(2,408,262)
(143,554)
44,640
4,528,638
(4,126,437)
(473,172)
(3,944)
8,121,614
(6,534,699)
(616,726)
40,696
Operating profit (loss)
77,904
(210,018)
(132,114)
1,085,800
(74,915)
1,010,885
Investment income
Income tax
Net earnings (loss) for the period
12,704
(86,970)
3,638
9
(75,533)
(285,542)
12,713
(162,503)
(281,904)
14,046
-
1,099,846
895
(44,818)
(118,838)
14,941
(44,818)
981,008
Included in general and administrative expenses for Canada is a severance expense of $446,250 (2012: $0) as
disclosed in note 10. General and administrative expenses include management fees representing a transfer of
corporate overhead expenses from the Canadian parent company to its US subsidiary. For year ending August
31, 2013, management fees amounted to $1,235,887 (2012: $1,583,308).
A summary of property and equipment, goodwill and total assets by country is as follows:
Consolidated Financial Statements
39
Caldwell Partners –
Property
and equipment
Intangible assets
Goodwill
at August 31, 2013
United States
Canada
Total
Canada
at August 31, 2012
United States
Total
820,661
539,985
1,360,646
965,161
538,854
1,504,015
-
-
447,434
447,434
1,039,922
1,039,922
-
-
488,647
488,647
973,458
973,458
Total assets
13,063,565
9,670,805
22,734,370
11,737,883
8,391,468
20,129,351
Depreciation recorded on property and equipment is as follows:
Canada
2013
United States
Total
Canada
2012
United States
Total
Depreciation expense
Amortization expense
209,458
-
190,825
71,563
400,283
71,563
205,584
-
184,822
115,016
390,406
115,016
16. Commitments
The Company's future operating lease commitments for premises excluding operating costs, including those
amounts paid to related parties as set out in note 17, are as follows:
Twelve months ending August 31, 2014
Twelve months ending August 31, 2015
Twelve months ending August 31, 2016
Twelve months ending August 31, 2017
Twelve months ending August 31, 2018
September 1, 2018 and thereafter
1,785,396
1,653,600
1,569,031
1,271,751
1,187,560
3,032,866
10,500,204
During the year ended August 31, 2013, the Company expensed $2,350,803 (2012: $2,270,792) relating to
operating leases for its nine locations in Canada and the United States, inclusive of rents paid to a related party
described in note 17. This expense is included in general and administrative expenses. With the exception of the
Toronto office, all leases are with third party commercial landlords at fair market rental rates at the inception of
the lease. Lease terms at inception were five to ten years, dependent on the location.
17. Related Party Transactions
Pursuant to its lease agreements, the Company paid rent for its Toronto office to an affiliated company owned
by a shareholder, C. Douglas Caldwell, registered as owning more than ten percent of the Company. The amount
of consideration agreed to by the parties was determined to be fair market rental rates at the inception of the
lease by an independent commercial real estate counselor and was approved by the independent members of the
Board of Directors. Occupancy costs within general and administrative expenses in the consolidated interim
statements of earnings (loss) have been recognized for year ended August 31, 2013 in the amount of $200,343
(2012: $200,343).
Consolidated Financial Statements
40
Caldwell Partners –
18. Financial Instruments
Classification of Financial Instruments
The classification of the financial instruments are shown in the table below. As at August 31, 2013 and 2012 the
carrying amounts equal their fair values.
Classification
Measurement
Cash and cash equivalents
Marketable securities
Accounts receivable
Restricted cash
Accounts payable
Compensation payable
Dividends payable
loans & receivables
available for sale
loans & receivables
loans & receivables
other financial liabilities
other financial liabilities
other financial liabilities
amortized cost
fair value
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
Fair value hierarchy
The Company categorizes its financial assets and liabilities measured at fair value into one of three different
levels depending on the observability of the inputs used in the measurement.
Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for
identical assets and liabilities in active markets that are accessible at the measurement date.
Level 2: This level includes valuations determined using directly or indirectly observable inputs other than
quoted prices included within Level 1. Derivative financial instruments in this category are valued
using models or other industry standard valuation techniques derived from observable market inputs.
Level 3: This level includes valuations based on inputs which are less observable, unavailable or where the
observable data does not support a significant portion of the instruments’ fair value.
The fair value hierarchy of marketable securities were Level 2 as at August 31, 2013 and 2012.
Fair value
Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are short-term financial
instruments whose fair value approximates their carrying amount given their short-term maturity.
The Company has designated the marketable securities in its portfolio as available for sale and as a result, these
are recorded at fair value with unrealized gains and losses that are considered temporary in nature being
measured in other comprehensive income. Other than temporary impairments of marketable securities are
recorded within the Company’s consolidated statement of earnings. Realized gains and losses are removed from
accumulated other comprehensive income and recognized within the consolidated statement of earnings (loss).
The Company is exposed to various financial risks resulting from its operating, investing and financing
activities. Financial risk management is carried out by the Company’s management, in conjunction with the
Investment Committee of the Board of Directors, with respect to investments in marketable securities and
management of the Company’s cash position. The Company does not enter into arrangements on financial
instruments for speculative purposes. The Company’s main financial risk exposures, as well as its risk
management policy, are detailed as follows:
Foreign currency risk
Caldwell Partners –
Consolidated Financial Statements
41
The Company is exposed to exchange risk on U.S. currency denominated monetary assets and liabilities. There
is a risk to the Company’s earnings from fluctuations in U.S. dollar exchange rates and the degree of volatility of
these rates as the Company’s financial results are reported in Canadian dollars.
At August 31, 2013, the Company has net monetary asset exposure of $3,287,975 denominated in U.S. dollars
(2012: $3,020,700). A 5% depreciation or appreciation in the Canadian dollar against the U.S. dollar, assuming
that all other variables remained the same, would have resulted in an increase or decrease in foreign exchange
gain/(loss) of $164,399 recognized in the cumulative translation adjustment in the Company’s consolidated
statement of financial position for the year ended August 31, 2013 (2012: $151,035).
In fiscal 2011, the Company began entering into foreign exchange forward contracts with a Canadian financial
institution to sell US dollars to reduce its foreign exchange risk. Seven such contracts each to sell $1 million US
expired during the year ending August 31, 2013, generating a net foreign exchange loss of $57,000 (2012:
$43,900 loss) which has been recorded in foreign exchange gains in the consolidated statement of earnings
(loss) for the year. As at August 31, 2013, the fair value of the foreign exchange forward contracts was a liability
of $57,600 (2012: $28,600).
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient cash
resources to meet its financial liabilities as they come due.
The Company manages liquidity by maintaining adequate cash and cash equivalent balances, monitoring its
investment portfolio of marketable securities, and monitoring cash requirements to meet expected operational
expenses including capital requirements. The future ability to pay its obligations relies on the Company
collecting its accounts receivable in a timely manner and by maintaining sufficient cash and cash equivalents in
excess of anticipated needs.
The contractual maturities of the Company’s significant non-derivative financial liabilities are as follows:
As at August 31, 2013
As at August 31, 2012
Accounts payable
Compensation payable
Dividends payable
less than
6 months
1,345,146
9,051,182
255,983
6 months
to 1 year 1 to 3 years
-
105,000
-
-
379,980
-
less than
6 months
1,007,926
7,673,729
254,782
6 months
to 1 year 1 to 3 years
-
-
-
-
186,267
-
Credit Risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially subject the Company to credit risk consist
principally of cash and cash equivalents, restricted cash, accounts receivable and loans receivable. The
Company places its cash and cash equivalents with high credit quality financial institutions.
Accounts receivable were comprised of the following at August 31:
Consolidated Financial Statements
42
Caldwell Partners –
Accounts receivables
Less: allowance for doubtful accounts
Other receivables
As at August 31
2013
2012
7,402,129
(352,031)
7,050,098
38,457
7,088,555
6,615,460
(531,800)
6,083,660
38,917
6,122,577
No financial assets are past due except for a portion of trade receivables. As at August 31, 2013, trade
receivables of $6,372,255 (2012: $5,295,752) were fully performing, $677,843 (2012: $701,451) were over 90
days but not impaired and $352,031 (2012: $618,257) were over 90 days and impaired.
The following table summarizes the changes in the allowance for doubtful accounts for the trade receivables:
As at August 31
2013
2012
Start of year
Provision for impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
End of year
531,800
340,517
(469,218)
(51,069)
352,031
225,739
431,395
(50,627)
(74,707)
531,800
Interest Rate Risk and Market Price Risk
The Company has no external debt and therefore exposure to interest rate risk on debt facilities is minimal. The
Company does invest excess cash in short-term deposits and therefore decreases in interest rates impact the
amount of interest income earned from those investments. Marketable securities are comprised of investments in
pooled funds which are also subject to market price risk (i.e. fair value fluctuates based on changes in market
prices).
At August 31, 2013, the Company has $3,576,811 invested in managed funds (2012: $3,303,044). A 5%
variation in the market price of underlying securities would have resulted in an increase or decrease in the value
of this asset of $178,841 (2012: $165,152).
19. Capital management
The Company’s capital is comprised of common shares of the Company and deficit. The Company manages its
capital to ensure financial flexibility, to increase shareholder value through organic growth and selective
acquisitions, as well as to allow the Company to respond to changes in economic and/or market conditions.
Because the Company continues to remain debt free, it is not subject to any externally imposed capital
requirements. There have been no changes in the Company’s approach to capital management during the current
year.
20. Comparative figures
Certain prior year figures have been reclassified to comply with current year classifications.
21. Subsequent event
On November 8, 2013 the Board of Directors declared a dividend of 1.75 cents per share, payable to holders of
Common Shares of record on November 25, 2012 and to be paid on December 13, 2013.
Consolidated Financial Statements
43
Caldwell Partners –
Directors
Officers
G Edmund King, Chair of the Board
John N Wallace
Corporate Director
Paul R. Daoust
President and Chief Executive Officer
The Caldwell Partners International Inc.
Consultant and Corporate Director
C. Christopher Beck, CPA
Chief Financial Officer and Corporate Secretary
The Caldwell Partners International Inc.
Richard D Innes
Consultant and Corporate Director
John N Wallace
President & Chief Executive Officer
The Caldwell Partners International Inc.
Kathryn A Welsh
Consultant and Corporate Director
Shareholder Information
Auditors
Transfer Agent
PricewaterhouseCoopers LLP
Valiant Trust Company
Chartered Accountants, Toronto, Ontario
Valiant Trust Company operates a telephone information inquiry line
Counsel
Miller Thomson LLP
Barristers and Solicitors, Toronto, Ontario
Stock Exchange Listing
The Toronto Stock Exchange (symbol: CWL)
that can be reached by dialing toll free:
+1 866 313 1872 or +1 604 699 4954
Correspondence may be addressed to:
The Caldwell Partners International Inc.
c/o Valiant Trust Company
130 King Street West, Suite 1800
PO Box 34
Toronto, Ontario, M5X 1A9
for other information, please contact:
C. Christopher Beck, Chief Financial Officer
+1 416 920 7702
The Caldwell Partners International Inc.
One Six Five Avenue Road
Toronto, Ontario, M5R 3S4
fax +1 416 920 8533
leaders@caldwellpartners.com
Caldwell Partners is one of North America’s premier providers of executive search and has
been for forty years. Our sterling reputation is built on our record of successful searches for
board directors, chief and senior executives, and selected functional experts, and our focus
on providing the highest quality client service.
www.caldwellpartners.com @CaldwellPtners
Atlanta
3424 Peachtree Road N.E.
Suite 1250
Atlanta, GA 30326
+1 403 265 8780
fax +1 403 263 6508
Calgary
520 Fifth Avenue, S.W.,
Suite 2000
Calgary, AB T2P 3R7
+1 403 265 8780
fax +1 403 263 6508
Dallas
909 Lake Carolyn Pkwy
Suite 1150
Irving, TX 75039
+1 214 748 3200
fax +1 972 910 0824
New York
60 East 42nd Street
Suite 740
New York, NY 10165
+1 212 953 3220
fax +1 212 953 4688
San Francisco
One Post Street
Suite 500
San Francisco, CA 94101
+1 415 983 7700
fax +1 415 983 0148
Stamford
263 Tresser Boulevard
Suite 800
Stamford, CT 06901
+1 203 324 6400
fax +1 203 356 0570
Los Angeles
Toronto
16255 Ventura Boulevard
Suite 1008
Encino, CA 91436
+1 818 995 7800
fax +1 818 995 8734
165 Avenue Road
Suite 600
Toronto, ON M5R 3S4
+1 416 920 7702
fax +1 416 922 8646
Vancouver
650 West Georgia Street
Suite 2605
Vancouver, BC V6B 4N9
+1 604 669 3550
fax +1 604 669 5095
Affiliated offices:
Hong Kong
Executive Search Group
International
Universal Trade Centre
28/F, Suite 2801
3-5 Arbuthnot Road
Central, Hong Kong
+852.2521.8333
fax +852.2521.8665
London
Hawksmoor Search
Sutherland House
3 Lloyds Avenue
London United Kingdom
EC3N 3DS
+020 31 67 2500
Copyright ©2013 The Caldwell Partners International Inc.
All rights reserved. Reproduction without permission is prohibited. Trademarks and logos are copyrights of their respective owners.